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FCPA

By Mark A. Srere and Kristin Robinson

Mark Srere is co-leader of Bryan Cave's Global Anti-Corruption/FCPA Team. He provides
a full range of counseling for clients in anticorruption compliance areas, including
drafting policies, implementing compliance programs, and addressing due diligence
issues that arise from mergers and acquisitions, hiring of agents and joint ventures.
Mr. Srere also conducts internal investigations related to anticorruption issues,
counsels clients on disclosure issues and defends against government investigations.

Kristin Robinson is a member of Bryan Cave's White Collar Defense and Investigation
group, where she defends individuals and corporations under investigation by government
agencies. She also conducts internal investigations for corporate clients involving
whistle-blower complaints and other allegations of fraud.

Anticorruption compliance is not a new frontier. For the past 10 years, the U.S.
government has significantly enhanced its enforcement of the Foreign Corrupt Practices
Act (FCPA) against both companies and individuals. As a result, every year or so,
a new nine-figure monetary penalty is imposed and another top executive goes to jail.
By now, every U.S. company doing business overseas should at least have an anticorruption
policy and an associated compliance program. As part of such a program, a company
should conduct periodic reviews to evaluate and improve its program. In conducting
such a review, it is helpful to review recent enforcement actions to assess how the
government views compliance programs. The Securities and Exchange Commission (SEC)
is not shy in criticizing companies for perceived compliance failures. This article
offers six practical tips on benchmarking your company's FCPA compliance program against
recent enforcement actions.

Corporate Hospitality

Corporate hospitality is an area that can create friction between Sales and Compliance.
To reduce that tension, a company should have in place clear, written policies of
what conduct and expenditures are acceptable or prohibited and what situations must
be pre-cleared by Compliance/Legal. In this area, the SEC has made clear that an
actual bribe is not necessary to find an FCPA violation. In the May 2015 settlement
with BHP Billiton, the SEC noted that even though the company “recognized that inviting
government officials to the Olympics created a heightened risk of violating anti-corruption
laws and the company's own Guide to Business Conduct … the internal controls it developed
and relied upon in an effort to address this risk were insufficient” (21 CARE 21, 5/22/15). Thus, while there were no allegations that any bribes were contemplated or paid,
the SEC highlighted the risk that a bribe could take place by Billiton inviting to
the Olympics government officials who were in a position to influence pending contract
negotiations.

Tip: When setting up a hospitality program for customers and potential customers, ensure
that any customer who might be considered a “foreign official” be segregated and treated
in a manner consistent with the FCPA resource guide issued by the SEC and the Department
of Justice (DOJ) in the fall of 2012. This process will bring heightened awareness
to how these potential “foreign officials”
may be treated by the company.

Travel

The government will not go after a company that provides “reasonable and bona fide”
travel and lodging expenses to foreign officials as long as those expenses are (i)
directly related to the promotion, demonstration, or explanation of a company's products
or services, or (ii) related to a company's execution or performance of a contract
with a foreign government or agency. In the February 2016 SciClone Pharmaceuticals
settlement for $12.8 million, the SEC criticized the company for using local travel
agencies to arrange travel and lodging for conferences that either did not include
a legitimate educational purpose or were
minimal in comparison to the associated recreational activities, such as a half-day of educational
activities compared to six days of sightseeing.

Tip: If your trip itinerary for a foreign official includes Disneyland or the Grand Canyon,
it is likely to be viewed as not “reasonable and bona fide.” It is a good idea to
require advance Compliance/Legal review and approval of all such proposed trip activities.

Human Resources/Hiring

Two settlements in March 2015, one with a major financial institution and one with
a major telecommunications company, emphasize that your anticorruption compliance
program should not ignore the Human Resources department or any established process
for hiring decisions. In the first settlement, the SEC stated that the bank's “system
of internal accounting controls was insufficiently tailored to the corruption risks
inherent in the hiring of client referrals, and therefore was inadequate to fully
effectuate
[its] stated policy against bribery of foreign officials.” In the second settlement,
the SEC cited e-mails discussing “must place” or “special” hires. These decisions
show that offering a job (even an unpaid internship) could be viewed as violating
the FCPA.

Tip: Your compliance program should have a protocol in place to ensure that any job offer
or internship that falls outside of the normal HR process be reviewed by Legal/Compliance
to ensure that it does not violate the FCPA.

Internal Controls

The SEC criticizes companies for failing to detect payments that raise red flags.
In some cases, such as the $9 million settlement in April 2016 with a Fortune 500
company, the surrounding circumstances point to an overall lax control environment (68 CARE, 4/8/16). In that case, “tens of millions of dollars … [were] paid out without appropriate
documentation or authorization,” a consultant referred to as a “beard” was paid $32
million, and one employee received a $26,000 cash advance and an $86,000 cash reimbursement
without proper authorization. Similarly, in the February 2016 settlement with a software
company, the SEC stated that the company's internal controls failed to flag an 82
percent discount on software licenses, which allowed an employee to create a slush
fund from which to pay bribes.

In other cases, however, the SEC has found fault with a company's controls where red
flag payments are deliberately hidden from company auditors. In a $14 million settlement
in July 2016, the company had acquired a Chinese subsidiary that was involved in bribes
before the acquisition. The company cleaned house and instituted a new compliance
program. The Chinese employees deliberately circumvented the new controls and continued
paying bribes by falsely characterizing the payments as vendor payments in amounts
that were so small that they were considered to be low risk. The SEC criticized the
company's global auditors for not truly understanding the transactions.

Tip: The Legal/Compliance personnel assigned to oversee the anticorruption compliance
program should conduct periodic reviews of the company's internal controls to ensure
that they are designed to detect ways in which employees may circumvent the controls
to create pools of money from which bribes could be paid.

Investigations

The purpose of an effective compliance program is to prevent and detect misconduct.
A key component of such a program is to ensure that compliance-related issues are
investigated promptly and appropriately. In the $28 million settlement with PTC in
February 2016, the SEC specifically criticized PTC for failing to identify and stop
the illicit payments to Chinese government officials and failing to take effective
remedial measures
despite conducting compliance reviews in its Chinese subsidiaries during 2006, 2008
and 2010 that included investigating possible corruption involving its business partners
(31 CARE, 2/17/16).

Tip: Be thorough in investigating compliance issues that are identified. Although you
do not have to “boil the ocean” in an investigation, you should ensure that you feel
comfortable that you have reasonably pulled the strings that are out there and determined
that they do not indicate wrongdoing.

Mergers and Acquisitions

Although the FCPA does not impose liability on an acquiring company for a target company's
conduct that occurred before an acquisition, the moment a U.S. company acquires a
foreign company, it is on the hook for violations that occur
after the acquisition. In the $16.2 million settlement with Goodyear Tire & Rubber in
February 2015, the SEC criticized the company for failing to conduct “adequate due
diligence”
when it acquired a Kenyan company and for failing to implement “adequate FCPA compliance
training and controls after the acquisition” (13 CARE 440, 2/27/15).

Tip: Perform exacting anticorruption due diligence
before buying a company. It will not only help prevent possible corruption problems, but
it will give you a better understanding of the true value of the acquisition. In
addition, after the acquisition, ensure that the company's anticorruption compliance
program is applied to the new subsidiary and ensure that there is adequate training
for new employees.

The above tips are important reminders to keep monitoring and updating as necessary
your company's anticorruption compliance program. It is not sufficient for a program
to remain stagnant; instead, you must actively engage and train appropriate employees
to understand the policies and procedures and ensure that those policies and procedures
are implemented and followed.

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